MSR valuations are subject to audit
MSR valuations are subject to Auditors evaluations and in the case of Bank owned Mortgage Servicer’s, subject to close review by government regulator examiners. Multiple factors make different servicing portfolios perform uniquely, prepayment rates vary by type of loan, ie FHA, VA conventional etc, Geographic concentration is another key factor driving prepayment rates affecting the expected duration of the loans. Average credit scores are important predictor of default rates and especially important in today’s market situation. Of course, the average weighted interest rate of a servicing portfolio compared to current interest rates is the key driving factor in the estimated duration of a servicing portfolio. All of these factors and more are considered in the valuation of a specific portfolio. Mortgage Servicer’s typically employ an independent source to provide a current valuation of their portfolio value. These estimates employ software models using all the relevant factors to estimate the value. Actual servicing sale transactions are also used to estimate the market value of a specific portfolio. The mortgage servicer’s then compares these estimates to the MSR value on their books and adjust that value accordingly. The companies use the independent valuations to justify the validity of the book value of their MSR asset. Still, it has been my experience that some Mortgage Servicer’s get away with over valuing their MSR’s, at least for a quarter or two. We will have to wait to see what COOP does.
